How To Avoid Business Bankruptcy (And What To Do When It Happens)

How to Avoid Business Bankruptcy (And What to Do When it Happens)

Bankruptcy is an available option, but you have the freedom to take it or leave it. Small business owners are one group who have to constantly fight their way from the brink of bankruptcy. Many are fortunate enough to get along with loyal customer base and unique service. Others are not so successful.

Approximately 43,546 small businesses have closed up shop in recent years due to bankruptcy. Keeping it going while bankrupt might be impossible, but can be done. Once filed, all for your business’ functions have to be stifled. How you proceed from there on will require enough diligence to avoid digging yourself deeper into debt to the point where you may need a debt consolidator.

Here are some ways you can prevent your small business from falling into bankruptcy, or function in the midst of it.

Re-evaluate Your Business Plan

Every entrepreneur should start out with a solid business plan. Without it, you’ll never truly know whether or not your venture is making or losing profit.

Most business plans exist the owner’s abstract ideas and instincts. Let’s say you’ve worked at a pizza parlor for five years and now you want to start your own. You might know the costs and practices that go into running a pizza parlor, but have no knowledge of the business end. A written manifesto must cover the sales, operating budgets, cash flow, capital expenses, performance objectives and tracking methods.

Don’t Make Preference Payments

During the start-up phase of your business, you might’ve borrowed money from sources that include (but aren’t limited to) friends and relatives. Once you plan on filing for bankruptcy, you would think paying those creditors their fair share is a noble idea. It’s also a bad idea.

Preference payments will be reviewed by trustees to make sure some creditors weren’t given an unfair advantage over others. This may result in the trustee recapturing those payments so they can be redistributed to each at a new, possibly fair, rates.

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